Buying to be bought out: An empirical study of shareholder activists chasing superior returns by guiding their targeted companies into being acquired in an M&A transaction

Abstract: In our thesis we examine the shareholder activism strategy with a focus on attempting to gain superior returns by guiding the companies towards a sale. We specifically look at the wealth creation effect at companies that are targeted by activists, using the event study method and try to tie the abnormal returns of their involvement to the level of premia offered in a later buyout with a simple OLS regression. Our unique sample consists of 105 companies that were both subject to an activist intervention in the last twenty years in addition to being bought out in an M&A transaction no later than 3 years after. We find that shareholder activist's involvement results in statistically significant positive returns, both in the short (2% to 6%)- and long-term (46%), increasing in time. There is also evidence for the abnormal returns being highest in holding period of 18-24 months, while the abnormal returns do not differentiate among various industries or repeat activists. We however cannot tie the activist' involvement nor the positive abnormal returns at intervention date to the premia obtained in the buyout offer, as our difference analysis shows no superiority of premia over a control group and the OLS regression yields very low r-squared results. While our results confirm previous research on the positive effects of shareholder activism to value creation, we cannot confirm the assumption that priced-in expectations are indicative of the premia obtained in a targeted companies' sale.